AUD benefits from broader USD correction

Daily Currency Update

Amid an absence of top-tier data and headline newsflow, the AUD outperformed Tuesday, bouncing off lows near US$0.65 and climbing back above US$0.6550. Data has been sparse to start the week, and markets largely ignored the RBA minutes. After policy makers elected to leave rates on hold earlier this month, our attentions were keenly focused on the minutes for any signal the RBA board may have shifted its policy expectations. Instead, the minutes simply confirmed the board will maintain an easing bias, adjudging that a measured approach to rate cuts was the most prudent course of action in the current environment. Expectations for a rate cut next month firmed with markets pricing at least three cuts into February next year. With the AUD barely moving following the release of the minutes, our focus shifts offshore and toward potential tariff news. Having edged back above US$0.6550, the AUD met resistance on attempts above US$0.6555. Reports a trade deal between the US and Philippines had been brokered, and confirmation that the Indonesian/US trade agreement has been ratified headlined trade news. With both agreements set to proceed with a tariff rate at 19% they offer perhaps some insight as to whether broader tariffs may settle. Markets had expected tariff rates would be winnowed down toward the lower end of those announced on liberation day, but so far it seems they are trending higher. This poses a risk to the AUD, and we expect the currency will remain firmly entrenched in its recent narrow range until a clearer picture emerges.